Retire Rich With Regular Savings And Compound Interest

'The best advice you can give your children is to save regularly'.

It might have been an OK thing to say when you were a child in the Seventies, but this just sounds so dull. So let me enlighten you for just one minute!

Albert Einstein said that the eighth wonder of the world was the act of compound interest. This is simply the interest on any earned interest - and it is a very powerful thing!

I need to point out the very important fact that time is absolutely key to using compound interest to your benefit and therefore becoming wealthy. It will take a lot of time, probably all your working life.

If you get into the habit of putting money away into a bank account on a regular basis and leaving it to accrue interest over the years, you will eventually be surprised at how quickly it grows. A direct debit from your account on payday may be unnoticed after a while.

The important points here are 'regular' - say every month when you get your wages and 'leaving' it. Yes, it's so easy to ruin the compounding process by taking the money out for a rainy day, so this is not what to do. One small withdrawal will affect many years of the compounding interest process.

The amount you contribute should almost be 'throw away' or disposable income. The sort you would spend without even thinking about it.

Here's an example of saving £50 every month in an account earning only 3% interest. (This is a rather low rate historically, which would rise if the account had a variable savings rate).

After the first year, you will only have £618. This is 12 lots of £50 contributions, plus only £18 in interest. After 10 years, you will have contributed £6,000 and got £2,500 in interest making a total of £8,500.

You will have doubled your money in 17 years (around £20,300) and saved £100,000 in a little under 28 years. You will be a millionaire after 34 years and a billionaire in the fortieth year!

The figures really accelerate in those final years. I didn't believe them at first, but they are true! Mind you, you might want to think about what effect inflation will have on your millions. You may be a billionaire, but what will you be able to buy in forty or so years' time?